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Customer concentration risk measures how dependent your business is on a small number of customers. High concentration is a major concern for investors, acquirers, and lenders — and a genuine business risk if those customers churn.
The key metrics
Top-N concentration %: Revenue from your top N customers / total revenue × 100. Investors typically flag anything above 10% for a single customer.
HHI (Herfindahl-Hirschman Index): Sum of squared market shares (×10,000). Used by antitrust regulators; also useful for measuring revenue concentration. Below 1,500 = competitive. 1,500–2,500 = moderate concentration. Above 2,500 = high.
Investor red lines
| Metric | Yellow flag | Red flag |
|---|---|---|
| Largest customer % | 10–20% | >20% |
| Top 3 customers % | 30–50% | >50% |
| Top 10 customers % | 50–70% | >70% |
These thresholds are especially scrutinized in due diligence for Series A+ and M&A transactions.
How to reduce concentration
- Diversify the pipeline: Add ICP-qualified leads from segments different from your largest customers.
- Grow small customers faster: Focus expansion revenue on mid-tier accounts.
- Limit contract size cap: Consider capping individual contracts at 15–20% of projected ARR to maintain diversification as you grow.
- Reduce discount for large accounts: Avoid pricing that incentivizes unhealthy over-dependence on single customers.
Frequently asked questions
What does this calculator do? Calculate customer concentration risk metrics: top-N concentration %, HHI index, and largest customer exposure for investor and risk management analysis.